Property Developer, Acorn to Sell Qwetu and Qejani Student Hostels Stake Through D-Reit

Property developer Acorn Holdings Limited is creating a development real estate investment trust (D-Reit) through which it will sell part of its ownership in its branded Qwetu and Qejani student hostels.

“Acorn is in the process of structuring a D-Reit as the promoter. Acorn’s current development pipeline will be sold to the Development Reit,” the company said in disclosures to bond investors from whom it recently raised KSh5 billion.

“It is intended that the D-Reit will purchase the partnership interests of Acorn in the issuer (the basket of hostels). Acorn intends to retain a 30 percent stake in the proposed D-Reit.”

A D-REIT is a type of REIT in which resources are pooled together for purposes of running development and construction projects.

The D-REIT will be used to finance the construction of sustainable and climate-resilient student hostel units in Nairobi, as the firm targets to put up 50,000 units in Nairobi. 

Acorn has completed four developments in Ruaraka, Madaraka Parklands, and along Jogoo Road, totalling 1,572 units. 

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Despite the D-REITs structure and regulations coming into effect in 2012, we don’t have a single D-REIT in Kenya 8 years later. 

So far D-REITs in Kenya have failed with Fusion Capital D-REIT issuance in 2016 attaining a low subscription rate and the Cytonn D-REIT approval pending at the Capital Markets Authority (CMA). 

We ascribe the failure and lack of traction in the structure to three main reasons: 

(i) the high minimum amounts required for investments set at Kshs 5.0 mn, which is 100 times the Kenyan median income of Kshs 50,000, 

(ii) the high minimum capital requirement of Kshs 100 mn for a trustee, which is 10 times more compared to the requirement of Kshs 10 mn for a pension trustee,  limiting the number of available trustees to just three banks, 

(iii) the lengthy approval processes that have no time limits. 

It has been 8 years since the regulations came into effect with nothing to show. 

Unless the structural market impediments are addressed, we are unlikely to see a D-REIT in the market anytime soon, making it hard to fund real estate initiatives such as the Affordable Housing initiative. 

We would suggest a candid and urgent review of the regulatory framework to understand why the structure has not worked so that we can make the necessary changes to make the framework relevaNT.

Additional Details from Cytonn Real Estate.